Sellers and buyers of commodities, financial securities, and other goods and services are increasingly turning to auctions to assist in the sale or purchase of a wide range of items. Auctions are useful for selling a unique item (e.g., a painting), a single type of item available in multiple units (e.g., 10 tons of gold), and multiple types of items available in multiple units (e.g., 10 tons of gold and 20 tons of silver). And just as auctions are useful for efficiently selling items at maximum price, they are also useful for efficiently procuring items at minimum cost.
Auction formats in the art tend generally to be of the sealed-bid or ascending-bid variety. In standard sealed-bid auctions, bidders—in one single bidding round—simultaneously and independently submit bids to the auctioneer, who then determines the auction outcome. In standard ascending-bid auctions, bidders—in a dynamic bidding process—submit bids in real time until no more bids are forthcoming. Sealed-bid auction formats offer the advantage of speed of the auction process. Ascending-bid auction formats offer the advantage that there is feedback among participants' bids, which tends to result in more aggressive bidding and in more efficient auction outcomes.
When auction systems and methods in the art are used to sell (or buy) multiple types of items, the auctioneer generally specifies an available supply (or demand) for each type of item. For example, the auctioneer announces a supply of 10 tons of gold and 20 tons of silver, and then solicits bids, in a sealed-bid or ascending-bid procedure, in order to obtain market-clearing prices for each of the two types of commodities.
However, consider a situation where the types of items are related, for example, contracts for provision of a commodity covering different time periods. For example, a government may wish to sell three types of financial securities: 3-month Treasury bills; 6-month Treasury bills; and 12-month Treasury bills. The government's only constraint may be that it needs to sell $50 billion worth of new debt securities at this auction, since this is the quantity of old debt securities that are maturing in the current calendar quarter. However, the government may have no preference as to how the required $50 billion is divided among 3-month bills, 6-month bills, and 12-month bills, respectively, and the government may simply wish to “let the market decide” the division among the various durations
Auction systems and methods in the art provide effective ways for the government to sell bonds with a fixed division among the various durations. However, new and better systems and methods can be devised for “letting the market decide” the division among the various durations. The same problem also occurs in real life in the sale of contracts for electricity and all kinds of other commodities, as well as in the procurement of related items. In several preferred embodiments, the present invention provides a system and method for the government in the above example to simply auction $50 billion of Treasury bills at the lowest possible cost (relative to the market's yield curve), without imposing a particular division among the various durations.